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Growth of six core sectors slows to 5.2% in April

Growth of six core sectors slows to 5.2% in April
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First Published: Wed, Jun 01 2011. 03 56 PM IST
Updated: Wed, Jun 01 2011. 03 57 PM IST
New Delhi: Growth of infrastructure industries, which have a significant bearing on overall factory output, slowed to 5.2% in April, with high inflation likely to have impacted the core sectors.
The six core industries, with a weight of 26.68% in the country’s index for industrial production, had expanded by 7.5% in the corresponding month of the previous fiscal.
Also Read | Index of Six Core Industries, April 2011 (PDF)
The data signals moderation in overall economic growth, as measured in the Gross Domestic Product. The GDP for the fourth quarter of fiscal 2010-11 had grown by 7.8%, the slowest pace in five quarters.
Headline inflation, which remains above 8%, is considered to be the main dampener.
A decline in cement output and lower growth in finished steel production led to the slowdown in the pace of expansion of the infrastructure sectors, which also include crude oil, petroleum refinery products, coal and electricity.
According to provisional data released on Wednesday, production of cement declined by 1.1% in April this year, as against a growth of 8.8% in the same month of 2010. Cement production has declined after three months of good growth since January this year.
Growth in finished steel production slowed down to 4.3% during the month under review, compared to 12.9% expansion in April last year. The latest numbers mark the lowest growth in production of finished steel since July, 2010.
Experts said the slowdown was expected, as high interest rates hit the industry. As the inflationary pressure continues, the trend will not change for another five-six months, they said.
Industrial production, as measured by the IIP, stood at 7.3% in March, compared to 15.5% expansion in the same month of 2010.
The slowdown in infrastructure sector growth could be a pointer for moderation in the overall factory output expansion.
“There is a slowdown in investments and this has been reflected in the performance of the core industries. Besides, the latest GDP data has proved that the economy has entered a period of moderate growth and it is likely to remain so for 5-6 months,” Standard Chartered head of research Samiran Chakraborty said.
He, however, said the base also has a role to play in the low numbers.
“The growth was very strong in April, 2010, and this has also got reflected,” Chakraborty said.
As per the latest data, electricity output grew by just 6.8% in April this year, as against 6.9% in the same month of 2010.
However, the other three sectors reported better growth during the month. Crude oil production topped the table with growth of 11% in April, compared to 5.1% expansion in the corresponding year-ago period.
Petroleum refinery products registered a growth of 6.6% in April, as against an increase of 5.3% in the same month last year. Output of these products had gone into a decline toward the last half of 2010, before recovering from December.
Coal output registered a growth of 2.9% in April, 2011, a complete turnaround in comparison to the same month last year, when output had contracted by 2.9%.
Coal production had been declining since January this year and the latest numbers show growth after three months of decline.
“It is going slower in pace, which is not a healthy trend... The interest rates are high, which are going to create some pressure on the growth rate. We are going to witness a moderate growth as inflationary pressures will be there,” Crisil chief economist D. K. Joshi said.
Chakraborty also cited inflationary pressure and the resultant rate hikes as a matter of concern.
“The global commodity prices are quite high and the outlook remain uncertain. This will ensure that inflation remains in high numbers for at least the next six months,” he said.
Headline inflation has been above 8% since January, 2010, and stood at 8.66% in April this year, much above the government’s “comfort zone” of 4-5%.
The Reserve Bank of India ( RBI) has already hiked its key policy rates nine times since March, 2010, to curb demand and tame inflation and experts have been saying that more rate hikes are on the cards, as inflationary pressure continues.
In its monetary policy for 2011-12, the RBI also said that high global commodity prices, particularly of crude, will put pressure on headline inflation in the near future. It said inflation would average 9% during the first half of the fiscal, before moderating to around 6% by March 2012.
The slowdown, as revealed by the latest data, comes a month after the six core infrastructure industries grew by 7.4% in March, 2011.
During the 2010-11 fiscal, the sectors had expanded by 5.9%, as against 5.5% in the previous year.
As per data released on Tuesday, India’s economy grew by just 7.8% in the fourth quarter ending March this year, mainly due to the poor performance of the manufacturing sector, as against 9.4% in the same three-month period of the previous fiscal.
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First Published: Wed, Jun 01 2011. 03 56 PM IST
More Topics: Core sectors | Infrastructure | Oil | Crude | Cement |